Question : 34 Price Supply Demand Consumer Surplus Ptariff Producer Surplus Tax Revenue Size of Tariff Societ al Societal LOSS iLoss + - P world Q 51 -Q52 Q c2 Q c1 Quantity Quantity of Imports (with tariff) Quantity of Imports (without tariff) Under free trade, consumer paid the price of import at the world price of $ 100 per ton of steel plate. Total import under free trade is 750 million tons (Qs1-Qcl). The government imposed a tariff of $ 50 per ton of steel plate. After tariff, the import drops to 500 million tons ( Qs2-Qc2). 10a) If the reduction of domestic supply ( Qs2-Qs1) is equal to reduction of domestic demand ( Qc1-Qc2) under tariff, what is the dollar amount of the net loss of social welfare ? b) The steel industry estimated that, after the tariff, the labor employment increases by 5000 people. How much the average cost of protection that taxpayers paid for each steel worker returning to work ? 11c) Iso-profit line intersects with the production function d ) Iso-profit line equals to production function e ) . Marginal revenue equals to price of the product 21. In comparative statistics, an increase of factor price will shift the iso-profit. Hence, a) The iso-profit line will become steeper and the ends up with less use of the input b) The iso-profit line will become flatter and the ends up with less use of the input c) The iso-profit line will become flatter and the ends up with more use of the input d) The iso-profit line will become steeper and the ends up with more use of the input e) The iso-profit line will become vertical and the use of input will be fixed. 22. For a firm to purse cost minimization, the firm must allocate inputs A and B in such combination that the slope of isoquant equals to iso-cost. Hence, a) Marginal product for input A = marginal product of input B b) Marginal product for input A times price of A = marginal product of input B time price of B c) The ratio of marginal product for input A and marginal product of input B equals to the relative price of A and B d) Marginal product for input A and B reach their the maximum e) Marginal product of inputs A ad B equals to marginal revenue 23. Firm A minimizes its cost, but firm B maximizes its profit. We can conclude that a) both firms maximize their profits b) Only Firm A maximizes its , but firm B definitely won't. c Each firm minimizes its costs d) Only firm B minimizes its cost, but not firm A e) Noe of the above 24. Which of the following statement is true if the prices of factors of production are all constant ? 6a) Increasing returns to scale will reduce the cost of production for the output b) Increasing returns to scale will increase the cost of production for the output c) Decreasing returns to scale will decrease the cost of production for the output d) Decreasing returns to scale will keep the cost of production constant e) Increasing returns to scale will keep the cost of production constant 25. Old McDonald has a demand function for mead that is given by the equation D(p) = 120 - p. If the price of mead is $80, how much is Old Mcdonald net consumer's surplus? 800 2250 poop 3200 1 125 7650 26. Suppose that in the short run, the firm has production function F(L, M) = 4L 1/2M /2 must us 64 machines and 225 units of L. The total output in the short run Will be a) 120 b) 240 C 480 600 e) 800 27. A company can rent one of two copying machines. The first costs $34 a month to rent and costs an additional 2 cents per copy to use. The second costs $107 a month to rent and an additional 1 cent per copy to use. How many copies would the company need to make per month in order for it to be worthwhile to rent the second machine? a. 7,300 13,300 C . 12,400 d. 6,900 e . None of the above. 728. Roberta runs a dress factory. She produces 50 dresses per day, using labor and electricity. She uses a combination of labor and electricity that produces 50 dresses per day in the cheapest possible way. She can hire as much labor as she wants at a cost of 20 cents per minute. She can use as much electricity as she wants at a cost of 10 cents per minute. Her production isoquants are smooth curves without kinks and she uses positive amounts of both inputs. a. The marginal product of a kilowatt-hour of electricity is twice the marginal product of a minute of labor. b. The marginal product of a minute of labor is twice the marginal product of a kilowatt-hour of electricity. c. The marginal product of a minute of labor is equal to the marginal product of a kilowatt-hour of electricity. d. There is not enough information to determine the ratio of marginal products. We'd have to know the production function to know this. e . The marginal product of a minute of labor plus the marginal product of a kilowatt-hour of labor must equal 50/(20 + 10). 29. A new metal alloy is discovered that uses copper and zinc in fixed proportions where each unit of the alloy requires 2 units of zinc and 2 units of copper. If no other inputs are required, if the price of zinc is $3 per unit, and the price of copper is $3 per unit and if total output is 5,000 units, what is the average cost per unit of output? a. $6 $1.50 (C.) $12 $15 e . $18 30. If the short-run marginal costs of producing a good are $20 for the first 400 units and $30 for each additional unit beyond 400, then in the short run, if the market price of output is $21, a profit-maximizing firm will a . produce a level of output where marginal revenue equals marginal costs. b . not produce at all, since marginal costs are increasing. produce up to the point where average costs equal $21. produce as much output as possible since there are constant returns to scale. e. produce exactly 400 units. 831. Philip owns and operates a gas station. Philip works 40 hours a week managing the station but doesn't draw a salary. He could earn $700 a week doing the same work for Terrance. The station owes the bank $100,000 and Philip has invested $100,000 of his own money. If Philip's accounting profits are $1,000 per week while the interest on his bank debt is $400 per week, the business's economic profits are a $0 per week. -$100 per week. C . $600 per week. $300 per week. e . $1,000 per week. 32. In the short run, the output in production function is determined by the variable input, said labor. The iso-profit line has a slope equal to W/P where W =wage and P-product price. The cost minimization is where a. The slope of production intersects with the iso-profit line The slope of production tangent with the iso-profit line c. The slope of production above the iso-profit line d. The slope of production below the iso-profit line e. None of the above. 33. Which of the following statement is correct ? a. Cost minimization is to minimize the cost given the level of output without the information of the price of product b. Cost minimization is to minimize the cost given the price of the product without the information of the level of output c. Profit maximization is to maximize the profit given the level of output without the information of the price of product d. Profit maximization is to maximize the profit given the level of output without the information of cost minimization e. None of the above. Part II : Discussing Question 20 points 9